The United States accused China of raising tensions through a new military garrison in the South China Sea as it called on all sides to lower tensions in the hotly contested waters.
Chinese posters celebrate and glamorise the capture of the Paracel Islands from (then South) Vietnam in a military clash in 1974.
China announced last week that it was establishing the tiny city of Sansha and a garrison on an island in the disputed Paracel chain, infuriating Vietnam and the Philippines which have accused Beijing of intimidation.
"We are concerned by the increase in tensions in the South China Sea and are monitoring the situation closely," US State Department spokesman Patrick Ventrell said in a statement, released on Friday.
"In particular, China's upgrading of the administrative level of Sansha city and establishment of a new military garrison there covering disputed areas of the South China Sea run counter to collaborative diplomatic efforts to resolve differences and risk further escalating tensions in the region," he said.
Ventrell also pointed to "confrontational rhetoric" and incidents at sea, saying: "The United States urges all parties to take steps to lower tensions."
Beijing on Saturday voiced "its strong dissatisfaction and opposition" with Washington's assertions.
Foreign ministry spokesman Qin Gang was cited by the official Xinhua news agency as making the remarks after the US hit out at the Chinese decision to establish a garrison.
China says it controls much of the South China Sea, but Brunei, Malaysia, Taiwan, the Philippines and Vietnam all claim portions. Vietnam and the Philippines have accused China of stepping up harassment at sea.
The United States has rallied behind Southeast Asian nations, expanding military ties with the Philippines and Vietnam. President Barack Obama has decided to send Marines to Australia in a further show of US power in Asia.
The US Senate approved a resolution late Thursday that "strongly urges" all regional nations to exercise self-restraint and to refrain from permanently inhabiting points in the South China Sea until a code of conduct is reached.
The resolution, sponsored by senators from both major parties, declared that the United States was committed "to assist the nations of Southeast Asia to remain strong and independent."
During a 2010 visit to Vietnam, Secretary of State Hillary Clinton declared that the United States had a national interest in freedom of navigation in the South China Sea, through which half of world cargo passes.
The State Department statement on Friday reiterated that the United States has an interest in stability and "unimpeded lawful commerce" in the South China Sea but that Washington does not take a position on rival claims.
China also has separate disputes with US ally Japan in the East China Sea, an issue discussed by Japanese Defense Minister Satoshi Morimoto on a visit Friday to Washington.
US Defense Secretary Leon Panetta, addressing a joint news conference with Morimoto, voiced hope for further progress in a code of conduct on the South China Sea.
"The last thing we want is to have direct confrontation in the South China Sea with regards to jurisdictional issues," Panetta said.
"Those should be resolved peacefully, and they should be resolved pursuant to a code of conduct. And the United States will do whatever we can to work with Japan and others to ensure that that is the approach we take," he said.
Southeast Asian nations faced deep divisions last month during annual talks in Cambodia, preventing them from issuing a customary joint communique and holding up progress on reaching a code of conduct with China.
The code of conduct would aim to set rules to reduce the chances of a spat over fishing, shipping rights or oil and gas exploration tipping into an armed conflict.
Robert Manning, a senior fellow at the Atlantic Council and former US government strategist, said that China may have set up the garrison as a way to counter the recent US military focus on Asia.
"To be sure, China is well aware that its assertiveness is not well received in East Asia, and tends to lead smaller nations to tilt to the US to balance China," Manning wrote in an essay released by his think tank.
"But Beijing seems to be calculating that despite the more robust US military posture in the region, China can throw its weight around and the US response will be limited to diplomatic reprimand," he wrote.